Gold in a Precarious Position

I have been interested in purchasing physical gold bullion, however I cannot justify the price of roughly $970-1000 for an American Eagle 1oz coin just quite yet. The price seems ridiculous and because of this, I started looking at the 3-year gold price chart, and I noticed something interesting. We’re in quite a precarious position here. For all intents and purposes, the price of gold has roughly doubled in the last 3 years from a low of $550 in June of 2006 to a high of $1000 in March of 2008 and 2009 respectively. This is an impressive gain and it wasn’t an easy battle either.

In 2006/2007 we saw a very pronounced isosceles triangle form as price action went from $700 to $550 then up and down and all around until it finally broke out in September 2007. Now fast-forward to March/April 2008. The price of gold has peaked out at a cool $1000.00 an ounce (Major Unconfirmed Resistance). Now the descent begins. The price seesaws all the way down to the $720 level by December (Major Confirmed Support). In roughly three months after the decline, the price of gold skyrockets back up to $1000 and subsequently hits (and confirms) the major resistance which exists at that price level.

So here we are, it’s the end of April 2009 and where is gold supposed to go? It’s currently dicking around at $893 per ounce which is pretty close to the 200-day moving average of $874 an ounce. If you’re a bull, you see a developing inverse head-and-shoulders pattern with a neckline at $850 per ounce. If you’re a bear, you see something reminiscent of a double-top coupled with a broadening wedge sort-of-thing. Hell, I don’t even think there’s a name for it but it’s potentially dangerous.

If you are a bull, you want to see gold hit $850 an ounce and then proceed to rebound up to $1000 before bouncing around in that channel for a while and then proceeding to sharply break out above the $1000 resistance. Once the rocket takes off, there’s no telling where it could go, but the sky is the limit. Conversely, if you’re a bear, you want to see gold test, and fail at $850. If this happens, gold should rapidly approach major support at $720 per ounce before settling down a bit.

So here I am, wanting to buy a gold eagle with the intentions of starting a collection of gold bullion merely because I want to, but I just can’t quite decide if I’m a bull or a bear yet. If I decide to be a bull, I want to buy bullion at or near the $850 level. If I’m a bear, I’ll wait until we confirm support again around $725.00